I would like to welcome everyone to the II-VI Incorporated third quarter fiscal year 2008 earnings conference call. (Operator Instructions) I would now like to turn the call over to Mr. Craig Creaturo, Chief Financial Officer. Sir, you may begin your conference.

Thank you Nicole and good morning everyone. I am Craig Creaturo, Chief Financial Officer and Treasurer of II-VI Incorporated. Welcome to the third quarter fiscal year 2008, II-VI Incorporated investor teleconference. As a reminder, this teleconference is being recorded on Tuesday, April 22, 2008. The forward-looking statements we may make during this teleconference speak as of today and we do not undertake any obligation to update these statements to reflect events or circumstances occurring after today.

Thank you Craig. I am Francis Kramer, President and CEO of II-VI Incorporated. I am very pleased to report record revenues and record bookings for the quarter ended March 31, 2008. Our bookings from continuing operations increased 44% compared to the third quarter of the last fiscal year and reached a record $93.7 million. Contributions toward these records occurred in the majority of our business segments. The Compound Semiconductor Group or CSG experienced 63% higher bookings as compared to last year’s third quarter. The just completed quarter was a very strong one for Marlow Industries. Bookings were up 58% year-over-year driven by strong demand in the industrial, defense and medical segments. The Q3 bookings included the largest single industrial order in the history of the Marlow division. In addition to these large increases, we continue to see a gradual increase in telecom demand. Revenues for the quarter were up 22% in the third quarter of FY08 versus the third quarter FY07 for Marlow. This was the result of increased sales in the defense, space and photonics, industrial and medical markets. We expected that industrial revenues driven by new applications will continue to increase during the fourth quarter. We further expanded our Vietnam manufacturing capacity to accommodate the increased demand in industrial products. Our largest medical customer’s next generation product was delayed during the just completed quarter due to customer program issues, but it is now expected to start in production during the fourth quarter. The Wide Bandgap Materials business for the Compound Semiconductor Group continues strong shipments of semi-insulating silicon carbide substrates to RFIC applications market in North America. Progress continues to be made in wafer qualification and several potential customers in Asia with full qualification at one large customer expected by June. During the quarter, we passed a major hurdle with one large Japanese customer by successfully completing a qualification system and manufacturing process audit at our New Jersey facility. To address crystal growth capacity challenges, we have finalized installation and qualification of several newly constructed growth furnaces, increasing our capacity 30% to date this fiscal year. On the technical front our government partners have completed one stage of evaluation of our 100 mm semi insulating wafers and report results on par with our more mature three inch wafer product offering. We have the polishing tools in place in our New Jersey facility to lower cost of 100 mm fabrication and polishing processes and are on track to ship 100 mm semi insulating wafers to commercial customers in this fiscal year. We have historically included in the compound semi conductor group, our eV products division, but our decision to sell this business has convinced the income statement results of eV into a single line item. II-VI has made significant investments in capital equipment, research and development and operations in this division over the last 15 years. This has enabled eV products to be the world leader in the radiation sensor business based on cadmium zinc telluride or CCT crystals. Our decision to sell this business was made after careful consideration of several factors most notably being; one, creating sustained II-VI share holder value; and two creating a path to unlocking the value of the technology that was developed at eV products over a long period of time. Following my comments Craig will make some general remarks on the financials of eV as well as how our financials will look now that we have made the decision to divest of this business. During the quarter our VLOC near-infrared business continued to meet or exceed the required schedule for deliveries of UV filter assemblies to our primary customer. This has been a very successfully program. Based on our best information and the interactions with our customer, our current forecast expects that the delivery rate on the UV filter business will reduce in the first quarter FY ’09 tri rate that is slightly below that we experienced in fiscal year ’07. Over the next few months we will determine the running rate needed by our customer and we will adjust our production plans accordingly. We have included this excepted slowdown in business in our initial guidance for fiscal year 2009 that was included in today’s press release. In our VLOC near-infrared business we continue to see increased demand for optics used in medical and cosmetic laser applications. We have been able to address this higher demand with our low cost capacity in our Vietnam facility. Example of this was our ability to quickly ramp capacity to meet a 40% demand increase or windows used in Lasic eye surgery. Military materials group also had very strong orders during the third quarter. Exotic Electro-Optics military infrared business units had improved margins and exceeded forecasts. Through the improved manufacturing yields, we reduced scrap expenses and improved productivity especially in the sapphire business unit. Bookings for the quarter increased slightly over the prior years third quarter, but we were $1 million below forecast due to a delay of production orders for infrared components for the arrowhead targeting system on the Apache helicopter. These delayed orders are excepted in the fourth quarter. We have received a request to increase the production rate of Sapphire window shrouds for the Advanced Targeting Pod ATP which is flown on the F-15 and F-16 fighter aircraft. Production orders and delivery rates are excepted to near double over the next two years. Exotic team is working with it’s customer to define production tooling and capital equipment requirements to support this product ramp-up. Accelerated delivery rate will be included with this production order which is now expected in the late Q4 FY08. The other part of the Military & Materials segment is our Pacific Rare Specialty Metals & Chemicals subsidiary called PRM which was acquired in June of 2007. PRM supply lines have continued to improve nicely in the third quarter for both selenium and tellurium raw materials. Third quarter bookings at PRM were strong due to the significant increase and the price of tellurium. As a point of reference tellurium was priced at $115 per kilogram on December 31, 2007 and on March 31, 2007 had climbed to $250 per kilogram. Revenues for the quarter continued at the rate needed to achieve our FY08 revenue projections of in excess of $20 million for the year. After three quarters of operating as a II-VI entity, PRM has met our profit projection and has been accretive to earnings. We have successfully recruited a General Manager, Mike Carpenter to run our PRM business. Mike has an extensive background in the chemical industry and will be fulltime onsite at PRM in the Philippines. In order they program in place to send all selenium containing material waste streams from our IR optics manufacturing operations around the world to PRM for recycling. This program should benefit both entities going forward. We are starting a capital investment plan to upgrade the PRM facility to increase capacity and capabilities. This investment plan of nearly $1 million will be executed over the next 18 months and will include upgrades to our laboratory and R&D facilities. The final segment today is the IR Optics division and I'm pleased to announce the hiring of Jean Yazbek as the president of the business. This addition culminates successfully a lengthy search by bringing to the business an experienced general manager with a background in managing profitable manufacturing and sales organizations. For the IR Optics division, bookings in the third quarter of $41.4 million excluding HIGHYAG exceeded those in the same period last year by 19%. This is the second consecutive quarterly booking record for the IR Optics division. The nine months total bookings of $160 million surpassed the same period last fiscal year by 17%. Order levels for the quarter were boosted by strong OEM bookings in the US, Asia and Europe. Strong production of lasers and laser machine tools in Germany, Switzerland and the UK contributed to a record-breaking quarter for Europe. Meanwhile, Japan bookings also set a new quarterly record with continued strength in laser machine builders and from laser Via-Hole drilling machine manufacturers and were assisted by the strength of the Japanese yen. Blanket orders for US OEMs resulted in bookings increase of 21% compared to the same quarter of last fiscal year. We continue to closely monitor US aftermarket orders for signs of a weakening economy. While certain market segments tied to the housing and automotive market have been weaker, our overall direct aftermarket sales for this fiscal year are forecasted to be 8% higher than last fiscal year. This growth is made possible by the very diverse markets addressed by the laser machine tool industry. Our zinc selenide and zinc sulfide capacity expansion has resulted in a significant increase in material production. We will finish our capacity expansion during the next quarter. Bookings for Zinc materials of $1.2 million in the third quarter were significantly higher than the $120,000 in the same quarter last fiscal year. Material bookings of $4.2 million or nine months of this fiscal year exceeded the last fiscal year by 20%. In March we realized the impact of the new capacity by increasing our output by 25% compared to the year-to-date monthly average. We except this increased output to continue in the months ahead and we will aggressively pursue material sales opportunities in a rapidly growing infrared imaging market. Our new high aid subsidiaries are being integrated into the two six infrared segment. Significant opportunities exist for the one micron laser well being of assemblies and components including many automobile, truck, agricultural, materials handling and moving equipment. Demand has been driven by higher fuel costs which promote light weighted vehicles for better fuel efficiency. We are currently positioned with a strong backlog of products for all of our business units. We believe we have a good visibility for the reminder of fiscal year 2008. While, we recognize their global economic challenges on uncertainties, we except to make our growth projections and continually look for new opportunities that will accrue to the benefit of our share holders during fiscal year 2009. Craig, that concludes my comments.

Thank you Fran. Here are the items I would like to highlight before we move into the question-and-answer portion of the call. As we noted in our press release on April 4 and as further described in today’s press release, our decision to sell the eV products division has led to our accounting stream into this business as a discontinued operation in accordance with SFAS 144 accounting for the impairment or disposal of long lived asset. Historical and current financials and related data in today’s press release have been presented on this basis. We disclose the prior year revenues of eV at approximately $8.5 million and the current year-to-date revenues at approximately $5.1 million in the April 4 press release. Further we have detailed the after tax losses from this business for the three and nine months ended March 31, 2008 and 2007 in today’s release. This is the financial information regarding eV that we are able to discuss at this time and we would entertain discussion during the question-and-answer portion of this call that focuses on any additional business related matters that we may be able to address excluding of course any particulars on the sale process and it’s status. Please also note that our guidance reflects the continuing operations of the Company excluding the discontinued operation. The record levels bookings for the quarter from continuing operations at $93.7 million has added to the Company’s backlog. When the beginning backlog from HIGHYAG is included which was approximately $1.6 million and the backlog of eV products is excluded, the current backlog from continuing operations now stands at $134 million. The components of the March 31, 2008 backlog from continuing operations were infrared optics at $38 million, near infrared optics at $19.5 million, military and materials at $44.5 million and compound semi conductor group at $32 million. This backlog is giving us confidence that our fourth quarter will be a record revenue quarter. The quarterly gross margin from continuing operations for the quarter came in at 41.7% and was lower than third quarter of last fiscal year and the second quarter of the current fiscal year. The addition of our recent acquisitions including HIGHYAG for the first time in this quarter we just completed has changed the mix of revenues for the Company. This along with other revenue mix changes is a significant contributor to the decrease on a percentage basis despite the $10.8 million increase on a dollar basis from the same quarter last year. Our Military & Materials and Compound Semiconductor Group businesses both posted solid gross margin gains during the quarter. The Infrared Optics business excluding HIGHYAG posted its second straight quarter of gross margin improvement. As we continue our efforts on yield improvement in crystal growth capacity expansion we believe there is upside for gross margin improvement in this business. The effective tax rate for the quarter from continuing operations was 17.7% and brought the year-to-date rate to 30.1% including the gain on the sale of the equity investment from the second quarter and 24.5% when this transaction is excluded. During the quarter, the Company benefited from the expiration of the statute of limitation of certain tax exposure items that were previously reserved in accordance with FIN 48 accounting for uncertainty in income taxes. Our current forecast projects that the year-to-date effective tax rate from continuing operations of 24.5% will be consistent with the rate we will use for the fourth quarter. During the third quarter, we made the tax payment that was due from our sale of our equity investment from the prior quarter of approximately $10.6 million. In addition, we spent about $6.2 million for the initial investment in HIGHYAG and $5.3 million to complete our open stock repurchase program. In spite of these uses, our consolidated cash balance only went down by approximately $6 million during the quarter which is a reflection of the strong operational performance of the business, because none of the three specific uses of cash in Q3 that I just mentioned will occur in the current quarter. We are expecting a build in cash during the current quarter as we close out the current fiscal year. Fran, this concludes my prepared remarks. Before we move into the question-and-answer session, I would like to mention that these comments and answers to certain questions contain forward-looking statements which are based on current expectations. Actual results could differ materially. For information about factors that could cause the actual results to differ materially, please refer to the risk factor section of our Form 10-K for the fiscal year ended June 30, 2007. Nicole, we are ready to begin the question-and-answer session.

(Operator Instructions) Your first question is from Avinash Kant of Broadpoint Capital.

Good morning Fran and Craig.

Hello Avinash.

A few questions. In the guidance for fiscal year ’09 of course you are guiding to I believe roughly 11% revenue growth. Historically, you have been able to add kind of 4% to 5% onto top line through acquisitions. Is that still the strategy and should we be thinking about that for the longer term?

Well, certainly it’s always our strategy to be out there opportunistically looking for an acquisition that fits our model and we are constantly trying to make that happen. So we are on the same strategy. Can it happen and will we find the right acquisition, it’s a little unpredictable. At the same time we have had may be a little larger top line growth organically and so may be a 11 might have been a few percentage points more in the past that certainly as I made comments in my prepared remarks. We have the little bit of a down wind on the UV filter business, so I think our growth on the tops adjusted a little bit based on that and whether we are going to be opportunistic enough to plan the right execution it’s hard for us to predict at this moment but we are trying.

Okay and then based on what you see at this point, do you expect overall backlog to continue to grow in the June quarter? Is that what you have in your guidance?

Avinash, we gave this specific guidance for the revenue growth but because of bookings we don’t control that or we don’t obviously have as much control over the customer orders. We don’t try to make projections on the bookings quarter, so we fit into the guidance what we think is going to flow out in the fourth quarter and again gives us the visibility and why we are able to come out with preliminary FY09 guidance as well but we are probably not in a position to make any specific guidance on the bookings, so.

And also the yield improvement, a question on that; I think -- I believe you talked about 30% growth in capacity. Now how much of that is coming from yield improvement and how much of that is just from the new installed capacity that you have had.

In my comments -- in my prepared comments I indicated we are up 25% in our output in March compared to the prior months of the year. So that is really when we are up 25% as opposed to 30% and its going to more like 20 of those 25 points is really from the new capacity; five on yield. I think in the last time I spoke about yield I said we had a problem and we are off let’s call it 100 index points and we have recovered 40 of those index points on the yield. The best I can say is we recovered may be a 45%, 50% of those. We are not all the way back and therefore I would say the capacity gained mainly 80% from the new equipments of which we will finish the other newer equipment coming on line here during the fourth quarter. So I think we are going to be out of the bottle neck. I am not having enough capacity to take advantage of all the sales that are out there and that’s just now starting to be felt, so that’s the mix of the improvement.

So Fran then the $1.2 million in revenues that you received this quarter, how big could that be? You are going forward I am talking.

That was $1.2 million of bookings we took in the quarter. We could -- it’s hard for me to project that number. It depends upon the programs that come forward to us that more people want materials and want to procure it from us. They usually supply more of those materials to fabricators of military defense systems. If it’s commercial military we tend not to see those RFQ’s or we are making those optics ourselves, but -- and in a nut shell we will easily -- it might not be in the fourth quarter but other quarters we can double, may be more than double that rate.

Do you see enough opportunity that this could be double if you had all the capacity?

Yes and it’s just as I said, it’s kind of opportunistic. When the orders, the RFQ’s are out there for these larger military or surveillance program systems that’s when we are active in the sales side of the market for materials.

Thank you. I will let others ask the question and get back in line later. Thank you.

Okay.

Your next question is from Ian Fleischer of FBR Capital Management.

Hi, good morning.

Hi, Ian.

Can you comment -- obviously the military segment was very strong orders wise. Can you draw down a bit on what specific areas you are seeing the strength in your military segment?

Let me give a little bit of a discussion. Certainly our business at Exotic is all military and the order bookings were as I stated a little better than the prior year’s quarter. The arrowhead program is certainly the one that goes on the Apache helicopter which is doing very, very well. We expect more future orders on ATP as I mentioned and another one JSF. If you go to another one of our businesses where we have military and that would be at our near-infrared VLOC, they did have bookings on the UV filter business here in the third quarter and that was good and the final group I’d comment on certainly the Marlow Industries business is very strong and we call it defense, space and photonics. Their business was strong and they are well positioned for most of these thermo-electric cooler order opportunities that come out in the military. Last one, the infrared group here in the Saxonburg location, that’s too military business and I think they were stronger than usual in this quarter in the military also.

And maybe also provide a little bit of granularity on the margin, how you think about that going forward.

Ian, I think we have got some upswing in certain of the businesses. As we mentioned, we have had a couple of quarters of improvement now in the infrared optics business. As Fran mentioned finishing out the capacity expansion and getting even further capacity definitely will help the margins of that business specifically. Fran mentioned, some of the other opportunities that we are working on in say, the Marlow business or the near-infrared optics business. We are making a little bit of a shift with the mix of the products, again HIGHYAG mix has changed the gross margin profile a little bit and some of the opportunities that we are going at are a little bit lower margin businesses than we have historically gone at but I would say roughly -- where we ended this quarter with the gross margins around 41.5%, 41.7% range, we do think there is kind of overall upside from that mark. That’s fairly consistent with where we are at year-to-date as well, but again, it’s going to be kind of business unit segment-by-segment specific. We definitely think there is upside again in the IR business and a couple of the other businesses but overall we should kind of trend -- to see that gross margin trend up on a gradual basis.

Okay, and just finally, just touching on your infrared optics segment that continues to see very strong looks like and demand with orders up 19% ex HIGHYAG. Can you provide a little bit more granularity on where are you seeing the strength there?

I have tried to make a couple of those comments in my prepared remarks Ian but certainly Europe -- the OEMs in Europe are strong, they are continuing to have good outlets for the new systems that they are building, the replacement systems and a lot of that heads into Europe and Asia and China. So they set a record -- European set a record and the Japanese also set a record. I am talking record by OEM’s asking for parts from us and the Japanese strong at one or two or three of the major laser head people, laser CL two laser head builders and laser system builders, especially the via hole drilling people which would be people like Apache, Mitsubishi and so on. So that runs in a cycle and they are on a up swing right now for via hole business, so Japan had a record. The US market was not a record for OEM’s but it was still, it was up nicely year-over-year 21% and then the final segment which I did make to comment on is US after market which we do try to monitor and report to you. We expect the full year to be up 8%. It’s a little weaker and it’s really probably our best things report on this that gives a general health of the Company because this really relates to everything that’s manufactured. One of these lasers are being run and at what rates of consumption of optics their hours of operation dictate and in the past we probably seen throughout 13%, 14% growth year-over-year from US OEM’s -- I mean US after market and now when we report we think it’s 8%. That tells you there is something a little less aggressive going on in the US economy as it relates to laser machine processing of materials.

Okay, so I mean it sounds like the strength you are seeing is really international in particular China and Japan and then also in Europe, East Europe and then the US continues to still grow at a decent rate, is that a fair assessment.

I think Ian that’s a very fair assessment. I think the other factor that we have is a corporation for the quarter. International sales were about 47%, so that’s kind of reconfirming the facts that -- Fran we are given you where the stronger areas that we are seeing and the higher growth areas are outside of the US. US, still doing okay but overall some of the more higher opportunities are outside of the US force.

Thanks, that’s very helpful thank you.

Your next question is from Dave Kang of Roth Capital.

Hi, thank you, good morning. Craig, why should we use as a tax rate for fiscal ’09. You gave something for fiscal fourth quarter but for fiscal ‘09 what should we use.

Dave, I think our expectation is that the tax rate will go up just slightly in FY ’09. We do -- we are moving into a higher tax program in China specifically. Some of the growth drivers that we will have will be US sourced income, that’s going to push our rate up a little bit. I don’t think it will be -- we will still get a nice benefit from the international operations that we have but they except their rate to be up to couple percentages from we are talking right now about -- right around 25% for this fiscal year, we need to be up by a couple of percentages from that probably would be pretty reasonable. We haven’t given any definite specific but I can tell you directionally we are anticipating we are going up a little bit.

And you gave international revenue. What was the mix between after market versus OEM?

We are still on the -- again what Fran was talking about was our US direct after market and when you step back from our infrared optics business, still 85% to 90% of those components optics mirrors, lenses, whatever components we make are going into the after market, so that’s still holding true and actually gaining a little bit as that installed base grows. So again 85%, 90% of the parts we are manufacturing are going to aftermarket uses. Fran was reporting on the direct aftermarket sales data that we have.

So, we do have and we tried to present or at least speak about the US aftermarket when we have more visibility. Europe and Asia visibility is much cloudier. In those markets, the customers who operate lasers tend to buy from the OEMs, a high percent of the time they are replacing parts. So the numbers for those markets are really purchased by the OEMs, the bulk of them.

Okay. And is really -- the strength you are seeing, is that really driven by new adoption or is that the primary driver right now because they are only at economies which are otherwise?

Yeah, it consists both. The switch of people from one way of processing to another and I always try to give some new examples of laser processing that’s happened. It came to our attention during the quarter. I do not have one this quarter except to report that it also slings from one economic issue to another and right now, the US is going heavier, believe it or not, from what we are seeing, our agricultural people, people like John Deere, things like that are buying more because of the Midwest focus on ethanol and the crop issues and so on and so when auto trends down which it is up in Michigan and so on, it’s up in Alabama and so on where we have import cars being built. But in general, the auto is down, agriculture is up, material handling people like JLG, they are up. I do not know the reason for that business being up but it slings in the US in the aftermarket by sector. Construction industry people who are building windows will need well did desiccant strips to put between glasses; that business is off right now. So when the economy changes like it is right now, one is down, one is up, sorry I don’t have any new applications to report.

Okay. Well, you guys talked about like Sanchez speaking on agriculture. I mean you guys talked about Sanchez using lasers several years ago but I don’t think I have seen much of that into supermarket. Can you just give us an update on that segment?

I think all the food stuff continues to move forward, some slower than others and depends upon the producer and how they want to mark the product, but it continues going forward. We usually highlight those market engraving applications, once, twice, maybe when it becomes new and since there not the product line that consumes optics for us in the aftermarket, those are lower power applications. We really wouldn’t tend to report on them again, but it is moving forward and I think it’s a matter of two, three years. People who already mark by the little stickies that they put on fruit or by ink would gradually face that down as their equipment gets worn out.

Got it, thank you.

(Operator Instructions) Your next question is from Jiwon Lee of Sidoti & Company.

Good morning.

Hi Jiwon.

I have several questions. First of all on the commercial IR front, the beginning backlog from HIGHYAG was about $1.6 million, correct?

That is correct.

Okay, so looking at sales and the bookings figure, roughly how much we build in for HIGHYAG contribution on that segment?

For during the quarter, this completed quarter Jiwon.

Yes please.

We did about just a right around $2 million in both bookings and sales for HIGHYAG, so -- and that was pretty close to what we anticipated. We do anticipate some growth over the next several quarters but roughly was about $2 million in both bookings and revenues for the quarter.

Okay great and then are you now taking all orders for your zinc based material. In other words when I look at your segment bookings there, are you booking everything that you could now that you are comfortable excepting on your new materials capacity down by the June quarter?

I would say we are not a 100% taking everything we can bid. We like to hold the prices at a good healthy level since we’ve been out of the market for quiet a while, one would think the only way to get back in is to drop the price and try to bring in a load of work. We are not doing that. We are managing our pricing at the level we think it should be and at the same time our inventory around our three plants that uses material real heavily is not the raw material we want. The amount we want on the shelf at all three places is not close to where we would like it to be, so we are trying to move smartly to take some more orders on the outside but still build our inventory and I that will -- that’s why we are not able to state a rate at which we think we will increase those orders. We are going to work pricing at a very -- at the optimal level let’s say over the next quarters so as our capacity gets built back up.

Okay and then on the UV filter business. The ’07 -- at ’07 level was about $20 million right, so looking at ’09 you drew a little caution there. How much lower revenue should we sort of expect for that business next year?

Well -- and I think Jiwon we tried to guide towards it. It’s going to be around that level again.

Alright, okay.

Our intelligence is roughly it’s good as our customers intelligence and right now we are seeing and based on recent data from them are planning that that portion of the business will be down and right now I think that’s about the best guidance we can give. I think Frank said slightly below that rate that we ran in FY 07 and you are right, that rate was right around $20 million, so that’s something we obviously are reacting too and working with the customer too make sure that we understand that. In the past on this program in this product line, there have been numerous changes. There might be positive changes, might be negative changes but we are giving our best information that we have at this time on that program but we do expect it to be down a little bit from that $20 million level in FY 09.

Okay and your expectations they sort of exclude any potential spread outside the helicopter. You have no increased visibility.

That is correct we are talking about the current platform and the current products serviced by our customer. What -- the current platform that they are retro pinning. That guidance does not anticipate branching off or going into some other similar or in general branch though.

Okay and IR windows for arrowhead programs; you said there was sort of order delays, but you expect that to pick up in the fourth quarter is that in the guidance?

That’s in the fourth quarter. We anticipate getting that order in the fourth quarter. I am not sure that that will end up translating into revenues in the fourth quarter, probably be more like early FY09 but that is definitely in our future guidance and I think that was just a slight delay from what we anticipated. There was growth as Fran mentioned and the military infrared optics business would have been more if we would have got this one order but we expect to hear now this quarter.

Okay, great. I will try to move fast and on the PRM side, obviously the tellurium price quarter-over-quarter, the price increase is tremendous. You mentioned your target for that business is about north of $20 million, right? And obviously you are using some of them for your Marlow business but you are on a margin base there. So how should we look at that business on an annualized basis?

Maybe one thing I’ll make the first comment and Craig can add to it. Certainly this margin improvement that could come to either Marlow or the IR Optics business in fiscal year ’08 has not happened. We had supply arrangements with other suppliers that we were working through during ’08. ’09 -- maybe late ’09 will start to get a little with the IR Optics group and the same on Marlow, so we are working again very gradually because with such a tight supply on selenium and tellurium, we are not going to stop on the supply agreements we have. At the same time, the sales opportunities of selling these materials, the number of metric tons of both selenium and tellurium for PRM might be slightly less than what we had anticipated when we were building this first projection for the business. So the pricing has helped a little in that regard. Volume slightly off on outside sales just because the price is so high, we are holding our prices up. We have taken less volume and I expect this volatility in the price of both of these to be a constant factor. So whether we are expanding sales or decreasing sales, we are looking at managing the margin between what we pay for these raw materials and what sell it at. That’s what we are focused knowing it’s going to move around and I think to have any significant impact on the II-VI business, this PRM recycling of zinc selenide and of tellurium materials probably would at the earliest will have a meaningful impact with the second half of ’09. That’s how much we are committed to other suppliers.

Okay. But because of the price strength, especially on the tellurium side, that helps your bottom line. No?

The problem goes that some of the -- you buy the tellurium raw materials or slimes at the higher price and we process it and sell it off at a higher price, so we are managing the margin between what we pay for these raw materials and we sell at. So, giving more dollar value of sales at the dollar values of margin will be about the same.

Okay, that’s very helpful, thank you and then your -- the Marlow industry, the quarter-over-quarter booking increase was tremendous. Is most of the booking increase as a result of your single largest order from the industrial customer or is it some other variable in there?

I think it’s pretty broad based Jiwon. I think we wanted to highlight that large industrial area that was taken but I think in the other market segments, I would say that we are seeing good acceptance. There is some other more sizeable orders in defense area. As Fran mentioned, even we are seeing a little bit come back on the telecom as well too and that demand continues to be kind of growing in a slower growth but still growth none the less. So it’s mostly industrial driven. We have some interesting opportunities that we will be working on here in the next one to three quarters that are mostly of an industrial nature, but there is also some defense in other bookings if they take in that’s helped that very large growth rate.

And final two questions I sense that you guys are being a little bit conservative when you are throwing out the initial F ‘09 guidance. What do you think you have to do, to raise that numbers going forward?

Well, I think we put out what we believe based on again what we are seeing in the market place. Obviously as we started on and highlighted that guidance excludes any results of our discontinued operation it obviously is only based on the existing businesses that we have. Obviously acquisitions are a key to that growth and I think again with the number of businesses that we have and the number of markets that we serve there are a lot of opportunities out there and again we will continue to pursue them and we will see how the year shapes out 15 months from now. But based on our guidance we are seeing kind of double-digit organic growth from our existing businesses even in this tough environment is very achievable for us and so we are comfortable with that but we are also not comfortable that the that’s going to be enough and that obviously acquisitions or other opportunities or other things that we can work on, obviously those are the things that we will work on. Whether it will come to pass in FY 09, time will tell, but that’s why we are kind of comfortable with the guidance we put out. Fran, do you want to add to that?

I will just add to it one that 11% sales growth, 12% earnings growth, we would hope to have greater than 12% earnings growth on that same sales and that comes down to yield everyone of our businesses has processes that depend on yield. We are constantly working on improving those yields. If we do make strides on -- you pick it whether it’s assembly yields of the thermo-electric coolers in Vietnam or whether it’s the assembly yields of the shrouds out in exotic, any improvement in that pretty much falls to the bottom line, so we are focused on it. Well certainly this zinc selenide material yield they issued that we have been having, we get a few more points on yield there, it will fall off the bottom line. So I would say I think the top line number is probably one we have to stick and I’m hopeful that we can do the bottom line better based on yield improvements.

Inversely though Fran, as you have more material sales and you are booking -- I mean doing strong business on the commercial IR out picks and to a degree of a right of military programs, do you feel that you have enough cost structure on your variety of different operations even including Marlow.

I am not quiet following your questions Jiwon. Do you mean we have enough capacity to...

I was thinking more about -- I am sorry. I was thinking more about your operating expenditure or your cost structure to grow that business.

Yes, I think we are just properly positioned. We have not had to wear in any more overhead. To manage it, we put in a little bit every year and I think we are -- we are feeling in ’09 we will put in some more over head at each one of our two or three places that have the little bit more growth that needs more technical skills and so on. We have a little bit that into our plan, that’s no doubt true and certainly our biggest challenge might be right now coming at us from Exotic where we know we are getting this doubling the production rate of ATP, that’s being requested. When that all plays out in the next 60 days and what we know is going to asked of us, I think we are going to be digging deep for more capital expenditures than what we have been expecting, but it won't hit on earnings impact to our guidance in ’09. I think it’s a longer term issue for the capacity, cost increases and I think that we are going to go through at Exotic and overall Jiwon I think you are seeing a little bit of -- in the financials if we put out in detail in the last page, we talked about capital spending; you are seeing us kind of slow down the level of capital spending overall. One of the bigger projects as we have been talking about quite a while, this capacity expansion here in Pennsylvania is really kind of coming to an end. In fact we would pretty much spend as we said, we are going to finish out the expansion this quarter here but really all the dollars are pretty much from an intensive purpose been spent, so we are kind of moving away from that. That has been the largest over the last couple of years, largest single project that we have been working on. As Fran mentioned, now we are going to get into some other smaller -- relatively smaller programs which is still important to the company.

That was my final question. How should we sort of look at the FY09 capital spending level?

I think we are going to end up for FY08, obviously for the year-to-date, we are right around the $12.5 million mark, down a little bit from last year. We are anticipating coming in and somewhere around the $16 million to $17 million range, up from the let’s say $12.5 million that we’re at right now. I think that level of spending is probably similar in FY09. We have obviously got, as Fran mentioned some individual projects that are on the table but nothing in the grand scale of what we have done here in Pennsylvania. So, I would say it’s going to be close. There is definitely a possibility that some of those projects could slide out a little bit. I think one of the things that we are going for is I would say, 75%, 80% of the capital spending that we do is discretionary and in other words, if we see the business not growing as fast or not needing to spend those capital items, we have a fair amount of discretion in that and I think we have definitely exercised that in the past and you should expect us to do that in the future, if in certain businesses, they don’t grow as fast as we anticipate. So I would say that that that’s some flexibility that we have and given that flexibility, I would say kind of probably at the similar rate, maybe want the potential to be a little bit less, so.

Okay, great. Thank you very much for patiently answering all my questions.

Sure.

Your next question is from Chris McDonald of Kennedy Capital.

Hi Fran and Craig.

Hi Chris.

Could you just walk through what you see are kind of big moving pieces on improving margins in the near-infrared optics business?

Well the near-infrared optics has some uplift over the last couple of years with the UV filter business. So that’s given it a good help pulling it up hill, so unfortunately as we look into ’09, we have in our guidance projected less of a margin at BLO senior infrared. As the UV business slows, the optics and crystals business and HIGHYAG business at that unit are not as strong as what UV has been able to generate. So our focus on the core, as we call core VLOC businesses -- optics and crystal and YAG is always on yield improvement, reducing cost, moving more product to Vietnam or China to get our costs down and that program continues under way and it’s going to be focused on even more as UV slows a little.

I am sorry Fran, I meant to ask about the infrared optics business, the zinc based business.

And I think in that business Chris really the biggest opportunity continues to be on the crystal growth VLOC. The other portions of the business, obviously have are yield -- the whole process is yield driven but I think the biggest opportunity right now is to continue to march forward and implement the kind of corrective and preventive measures that we have discovered that need to be put in place for our crystal growth yields. I think the other areas, the fabrication area and the coating areas again always something that we are working on, always something that we can address, but the biggest near turn opportunity forces on the crystal growth.

And how does the capacity edition and the availability of supply through PRM factor and the margins, when you look at over a long year term period, may be a 12 or 18 months period.

I think we are right now I think in the near term again, kind of in that in between period winding down some of the contracts that we have whether it be for selenium or tellurium we are -- as Fran mentioned we are I would say highly optimized now on the scrap recycling programs around the world that’s not only giving say opportunity to may be pull selenium for instance back to our infrared optics business, but it’s giving us one more source of supply that may be making opportunity for a selenium based sale from PRM, so again I think that’s smartly managing the kind of source or supply that we have. Even in the internal source we are also making the decisions here to come back to the business and send it there or should it be used for another may be potentially higher margin or beneficial program. Again that was -- PRM, the underlying theme there from us was obviously a business that we believe can grow and also a business that will service as a long term way to kind of insulate ourselves against certain of the raw material pricing. As Fran mentioned with the example on tellurium just because we have them we are not going to be able to get away from a large tellurium price increase. Everybody is smart enough to exchange the source of supply over the market based pricing. We’ve been smart enough to focus on market based pricing for the sales, but overall I mean we are seeing it as a deposit that’s why we are investing in the business in the capital, in the infrastructure so that we can continue to address those opportunities.

Okay and then clearly you have had a nice improvement in the margin here over the last couple of quarters. If I look back a couple of years in that business it’s 30%, 31% hike segment margin and you did roughly 25% this quarter. I was just wondering you have had the raw material price increase that you had to -- or the raw material cost increase that you have to deal with but in an optimal situation is it possible to get that segment back to that 30%, 31% hike segment margin level or is something fundamentally changed there.

Chris, I think obviously our direction would be to get back to -- and again with things we talked about on this call that we can -- that we are working on and can improve, I think that is -- those are different thing that will pull that operating margin or segment operating margin up. I would say though that as we continue to not only focus on the percentage improvement, I think the dollar improvement is maybe more important. Now what we are saying; this is the first time we have ever put out more than $10 million of segment earnings to fund that business line. So, we like you are focused on the percentages but also this year dollars; that’s important to us as well. We are proud of the fact that that business continues to grow and is a profitable one and very successful business, but again we are relentless in our pursuit of trying to make that a little bit higher or a little bit better again now that we have got the HIGHYAG reported in with that segment that is a little bit of a different mix. Their margins have historically been not at the levels of the infrared optics business. So that will change that up a little bit but again I think our focus is just that continuous improvement and working on the things we have talked about a couple of -- at different points on this call.

Okay, thanks. Craig, I didn’t mean the downplay, the success that you have had there by any means but just seems like there continues to be a lot of opportunity in that business if you deal with some yield this year.

And I wasn’t preaching to you Chris, I was just reminding that we sometimes -- we have a habit of we get hung up on the percentages, we don’t step back to say that that obviously that segment operating margin improvement has been very healthy. Percentage wise it’s moving in the right direction, but dollar wise it’s definitely helped to have the successful quarter that we did this past quarter, so.

Appreciate it. Thanks, Craig.

At this time, there are no further questions.

If there are no more questions, I would like to thank everyone for participating today. Our next earnings release for the quarter and year ending June 30, 2008 is scheduled for before the market opens on Tuesday, August 5. The conference call is to fall that same day at 9:00 am Eastern Time. Thank you for participating in today’s conference call.